I used to have Kmart stock a few years ago. When I bought it, they were on an upswing (I thought) and seemed like a good investment. Little did I know, the bottom was about to fall out of the stock price. My small investment not only lost money, but the stock itself became worthless when Kmart Corporation dissolved under Chapter 11 bankruptcy and was reborn as Kmart Holding Corporation with all new stock (which is doing very well, I might add).
I was largely indifferent to Kmart before; I mean it's okay, but Target's a little cooler and Wal-Mart has better prices. Nowadays, even though I should have taken my money and went shopping at Kmart rather than invest in it, I kind of like it. They have some cool things and these days it's easy to get in and out of. It's sad to see it wither away. Oh well, the only thing that doesn't change is the fact that everything changes. Read on.
Sears Goes Shopping
Retailer to acquire 61 former Kmart, Wal-Mart locations
from visualstore.com
Sears, Roebuck and Co. (Hoffman Estates, Ill.) has agreed to acquire ownership or leasehold interest in up to 61 off-mall stores from Kmart Holding Corp. (Troy, Mich.) and Wal-Mart Stores Inc. (Bentonville, Ark.) for approximately $620 million in cash.
The majority of the stores are expected to be converted by fourth quarter 2005 to Sears nameplates, including a new mid-size format that is modeled on Sears Grand.
The Kmart stores are located primarily in large, urban markets with home, family and income demographics similar to Sears' target demographics. The seven Wal-Mart stores are located in mid-size markets that Sears says also fit well into its market and demographic profile.
"These transactions will jump-start our strategy to grow the Sears brand off-mall, increase our points of distribution, and acquire well-located real estate at a fair value in key markets for Sears," said chairman and ceo Alan Lacy. "The acquisitions will allow us to quickly open more stores and significantly boost our off-mall retail presence in priority markets that have synergies with our existing mall-based stores."
Sears said it plans to increase the pace of growth for its Sears Grand format, targeting three of the newly acquired Kmart locations for conversion to Sears Grand stores. Including the previously announced four Sears Grand stores expected to be opened by the end of 2004, the company expects to be operating 12-14 Sears Grands at the end of 2005.
The portfolio of stores to be acquired average 110,000 gross square feet and 84,000 selling square feet, compared with an average of 90,000 selling square feet for Sears’ current full-line stores. Most of the new stores will be converted to the new mid-size format, modeled on Sears Grand. The floor design of the new stores will be on one level, utilizing a common layout similar to the open-racetrack design of existing Sears Grand stores, with exit cashiering near the door. The design will allow more efficient store operations and a significantly increased ratio of selling to gross square footage.
“Almost 60 percent of these new locations will be in the top 15 DMAs and will significantly increase our store coverage in the nation's largest markets, filling in our footprint and supplementing our mall-based stores by providing customers with the convenience they need," Lacy said. "Starting with a "Best of Sears" assortment tailored for specific markets, we will employ many of the successful merchandising and design elements of Sears Grand in the mid-size floor plan of the new format. These new off-mall stores will have improved operating efficiency and leverage our supply chain and marketing expenses."
Sears will pay cash for the Kmart stores and make lease payments under subleases for the seven Wal-Mart stores. The acquisitions include real estate and Kmart store fixtures, but exclude inventory and liabilities not related to leases. Sears expects to take possession of four stores in 2004, up to 55 stores in 2005 and the remaining two stores in 2006. Sears plans to invest approximately $200 million to remodel and re-fixture the stores, and expects to complete conversions of the majority of the locations by fourth quarter 2005. The acquisitions are expected to be accretive to earnings in the first full year of operation, 2006.
The Sears deal, and a previously announced sale of store locations to The Home Depot Inc. (Atlanta), will net the struggling Kmart almost $1 billion. "Both transactions represent opportunities to realize value, which can be utilized to improve the remaining store base and to strengthen the company," said Kmart president and ceo Julian Day. "We are not currently in discussions regarding any additional significant store sales, although we will continue to evaluate opportunities as they arise. Kmart will remain one of the largest retailers in America, with over 1420 stores and approximately $20 billion in revenues. We will be able to direct all our attention on building upon and accelerating the considerable operating improvements that we have already achieved, including the fall apparel launch in July and our partnership with the WB Network. We have a strong management team in place and are committed to making Kmart a better company every day."
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